Korea Zinc and MBK Partners clash again, this time over 'responsibility for PEF contributions' [fn Market Watch]

[Financial News]  The management-control dispute between Korea Zinc and MBK Partners and Youngpoong Corporation is expanding into a dispute over responsibility for private equity fund (PEF) contributions. Over investment transactions by a One Asia Partners fund backed by Korea Zinc, MBK and Youngpoong Corporation have alleged that the transactions were linked in advance, while Korea Zinc has countered that they resulted from the manager’s independent investment decisions. Beyond the propriety of the investments, the key issue has become how much the limited partner (LP) knew about and was involved in the transaction structure.
According to investment banking (IB) industry sources on the 2nd, MBK and Youngpoong Corporation raised suspicions that the parties to the transactions had consulted in advance during the investment process for “Gray No. 1,” a One Asia project fund to which Korea Zinc contributed 110 billion won.
The fund invested 100 billion won in Graygo, an apparel company affiliated with Kakao Corp., in August–September 2022. The deal involved acquiring 50 billion won in existing shares held by Kakao Entertainment and 50 billion won in newly issued shares. MBK and Youngpoong Corporation claimed that “One Asia and Kakao’s side had been discussing follow-on investments as part of a coordinated arrangement from two months before the transaction was executed” and that “the actual transaction was carried out as discussed in advance.” They also raised the possibility of a conflict of interest, noting that the follow-on investment targets included companies in which Korea Zinc Chairman Choi Yun-beom had previously invested in personally.
Korea Zinc countered that this was an allegation that arbitrarily linked investment transactions between separate legal entities.
Korea Zinc said it had contributed to the fund solely for financial investment purposes, while the selection and execution of specific investments fell within the manager (GP)’s exclusive remit. It also stressed that investment merit cannot be judged solely by whether a target is loss-making or related to its core business.
A point of interest in this dispute is the nature of project funds. Unlike ordinary blind funds, project funds are often established with a specific investment target in mind. However, knowing the target in advance is a separate matter from approving or participating in follow-on transactions.
One IB industry source noted, “Project funds are generally often formed with the investment target and key terms specified in advance, but the actual extent of an LP’s involvement varies according to the fund agreement and decision-making structure,” adding, “In this case as well, separately from whether the parties to the transactions consulted in advance, the key issue will be how much Korea Zinc knew about and was involved in the transaction.”
The dispute between the two sides also broadened to questions about the other side’s shareholder value. Korea Zinc hit back by citing the Homeplus controversy involving MBK, controversy surrounding the sale of Golfzon County, and the undervaluation of Youngpoong Corporation. MBK and Youngpoong Corporation say Korea Zinc’s fund management process and any conflicts of interest need to be examined.
Some observers say the crux ultimately lies in the actual decision-making structure reflected in the fund agreements and investment review materials. As the management-control dispute drags on, past PEF investments have also come under scrutiny as part of a review of corporate governance.


[email protected] Kim Gyeong-a Reporter